applying systems thinking to organizations

The concept of Systems (systems thinking, causal loops, feedback, etc.) has been around for a long time. The formal theories go back at least 50 years, and the philosophical ideas (like holsim) can be found in ancient texts from thousands of years ago. So is this really of use to organizations?

Actually, yes.

The easiest way to see this is through people and organizations. It’s amazing to see how people get lost behind the facilities, equipment, production, finances, etc., of organizations. But if there were no people, there would be no organization. There might be a factory full of robots, but that is not an organization. So organizations are often assumed to be collections of individual humans.

That would be simple, if individuals added up to organizations. Unfortunately, we also know better than that, but we sometimes don’t make the connections.

From the time that we’re kids in school, we know that people act differently in one group than in another. Most of us are pretty clear, too, that when we go back to visit with our parents and siblings, or other family members, we fall (or get shoved) right back into old roles and old ways of being. Anyone who has ever had training in group dynamics understands this, as well. The setting that we’re in gives us a lot of cues about how we’re supposed to act, and we respond to those unconsciously more than because we really mean to.

Groups and organizations are not just collections of humans. Each one creates a different context with different expectations and (usually unspoken) rules. They are actually more like ongoing performances in which we act out roles. In this case, though, there is no predetermined script. We’re helping to write it every day.

There are mission statements, job descriptions, performance goals, policies, training, directives – even scripted statements and written text (like help screens) to be used verbatim by employees – all of which give cues and direction to guide our behaviors. There are also expectations that we will use our knowledge and experience to apply to new situations as they arise. Supposedly, all of this in done in coordination with each other, so that the organization as a whole moves as some giant flock of birds or swarm of insects, towards some common direction.

Our collective activities form the system that we know as an organization, but it doesn’t encompass everything about us individually. We all contribute things – play parts – that create the collective process that we call an organization.

So where is the breaking point between the individual and the collective. What is it that creates a system?

We’re capable of participating in many different kinds of organizations, and other types of human systems, in parallel throughout our lives. We can be employees at work, family members at home, team members in sports, etc. Even at work, though, we’re not just members of the the organization as a whole. If it’s a large place we probably fit into a department, and possibly a division or region. If it’s a small place we may have a number of roles that we play, moving through them at various points in a day or week.

In each place, there is something that defines the roles, and something that identifies the system as “this organization” rather than “that family.” Individuals move in and out of different systems all the time and while it affects the system to different degrees, they remain substantially intact throughout many changes. (The CEO is often the person to see him- or herself as the most indispensable, but things move on, as many have learned.)

If you’re going to work on your organization, then, what exactly does that mean?

It starts with understanding that you are not trying to change or fix individual people. You’re changing a very complex network of interactions and roles between people, most of which operate at an unconscious level. You can do some of that through information (like training programs or employee meetings or mass emails put out by the communications function.) But information will mostly affect the things that people do consciously. If you’re going to affect the system, you have to affect what the system is – and that starts an entirely different conversation.

The answer starts in how we learn. Most people don’t create tools. We just learn to use them with more or less proficency. Whether it’s hammers and wrenches or computer hardware and software or microscopes and gas chromatography-mass spectrometry (GC-MS) machines, we get some form of training and education in order to use tools to accomplish tasks that are relevant to our jobs. The same applies to work processes. Most of us don’t design them, we just learn to use them, and to modify or adjust them as necessary. In fact, mastery of technical or business or organizational skills usually implies experience, such that a person can “read” a situation and know easily what the most likely solution would be, or even anticipate a problem before it happens.

This usually keeps our focus on efficiency: doing more work with greater accuracy and less effort. Under a lot of scenarios, this is a good thing. As long as what we’re doing is the right thing (the right product, the right service, the right procedure) it’s good to make it better. Where people often get into trouble (in many ways) is through assumptions. The trouble, though, is that we need assumptions; they’re an important part of being efficient. If we had to question or think about every detail of what we did everyday, we’d get very little done. So the tendency is usually to “try harder” – to put more pressure on the wrench, or on people who are supposed to be getting something accomplished, if things are not working. Sometimes that strategy works, but only if the problem resides at that level.

The more difficult approach is “take a step back” and try to understand the nature of the problem itself. Just because a problem showed up in a particular place doesn’t mean that the problem actually started there – or can be fixed there. If a part breaks in a machine it could just be a faulty part. The simplest answer is to replace it. If the new part breaks it could be a bad supplier who continues to sell you defective parts. It could also be that the machine is being used for something that exceeds its capacity and you have just found its weakest link – the part that will continue to break if you continue to use it this way. (You could replace that part with a sturdier one, but that may just lead you to find the next weakest link.)

The same basic principle applies to people. If you have an employee problem the simple answer is to assume that you have a problem-employee, and to replace them. By the time you’ve had several people in the same position, though, and continued to have similar problems, it should become clear that the problem may not reside in those individuals, or necessarily in their professional backgrounds or professional orientations to the world. (In the mean time, you may have lost some people who were actually good, and wasted a lot of time on resources and recruiting, etc.) The problem may lie in the role or the position itself, or in how that role fits into the rest of the organization.

The possibilites continue to scale up. Your marketing problem may actually be a larger shift in the markets themselves. Doubling your advertising and public relations budgets probably won’t fix that.

The most difficult problem is how simple and self-evident this is – but why we don’t often act on it. We end up with Sales blaming Distribution for a problem that they are sure Production caused. Or we do double the advertising budget because Sales and Marketing both pushed for it, and if that doesn’t work we’re left with less money to invest in another solution.

Getting to the right issue at the right level is one way to apply systems thinking to organizations, and one that can create a significant return on its investment.

One of the biggest challenges we face at the moment is the shift towards a service economy. Depending on the statistics that you read, about 70% of American jobs, and 80% of US GDP, are based on services. It’s not much different for many other “developed” (3rd World, OECD…) countries. That information, though, only generates a lot more questions. For instance:

What constitutes services? The answer varies a great deal. In the broadest economic terms, activities get lumped into two very general categories: goods and services. Everything that is not a physical product can be considered a service. Those get categorized and counted quite differently, though, by different organizations and agencies. And it still leaves a lot of questions. If I hire someone to clean my house that seems clearly to be a service. But if medical care is not a tangible product, is the open-heart surgery that my doctor performs really counted in the same category, and evaluated the same way? How do those jobs differ from installing a computer system, or managing a major hedge fund, in terms of how we count and evaluate them?

If services are so important, can we get better at delivering them? We know how to do research in science and technology. We also know how to improve efficiency in manufacturing, both in processes and the products. Do the same principles apply for services? Is better service just a matter of greater output in less time at the specified level of quality? (Think not just about your housekeeping, but also about your surgery.)

If we can no longer compete with fast-developing countries in terms of manufacturing exports, can we make up the difference in services? It’s a dilemma for the US. It’s an even bigger issue for countries like Japan, which have relied extensively on manufacturing exports for a generation.

The most difficult problem is asking the initial questions in the right way. What really is the problem? Actually, what is service?

As consumers, we buy things in order to meet some need or achieve some purpose. Whether I buy a car (purchase of a good) or rent a car (a service) or lease a car, for instance, is primarily a matter of accounting. Each has different costs and different contractual rights, but if what I need is the utility of the car to get me from one location to another, it doesn’t change much about the car. Ultimately, I am more concerned about the utility of what I pay for – about achieving the end result that I want at a cost that I am willing to pay – than I am about ownership, per se. It’s the same when a business decides to outsource a process, or to partner with another company rather than acquire one. Again, it’s primarily a matter of accounting (and a perception about control.)

In the end, then, there is little difference between tangible and intangible products. Both are meant to achieve certain results, hopefully producing the satisfaction that I seek as a consumer.

One way to think about service, then, is as the set of activities that fills the gap between the thing that I purchase and the result that I want. If I buy a new car and it operates the way that other cars I have owned do, then there is little that I have to learn in order to drive it. I just want it to run as dependably as I think it should, based on what I paid for it. On the other hand, if I buy a new software program I may or may not know how to operate it. If I’m savvy with software programs, learning to use it may be fairly intuitive. If not, I may need more help. If what I bought is a payroll program, and my business has been using a manual accounting program up to now, I will probably need a lot more service. If you follow this thinking, service can’t help but be individualized, at least to some degree. That’s why it is complicated and often expensive to do well.

There are other ways to think about service. One is that service is the co-creation of value (Jim, Spohrer, IBM Research). Another is that service is the creation of shared experience, based on shared mental models or understanding (Kyoichi Kijima, Tokyo Institute of Technology).

The difficult shift is that all of these move beyond the level of transactions to the nature of the relationships involved. The better that you know customers and partners, the easier it is to understand and anticipate needs. Transactions, to some degree, can rely on manipulation of consumers in markets. Service really cannot. Transaction-based business can get away with “buyer beware” strategies. Relation-based business has to address trust. If you want me to participate with you, we both have to have something to gain. Quality, efficiency and economies of scale don’t stop being important in this new economy, they just aren’t enough by themselves.